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UCLA tries to put economic debate about California and Texas to rest

March 9, 2011 | 8:29
am

As two of the biggest states in the U.S., Texas and California are natural rivals.

They have cowboy boots, we have flip-flops, they're a red state and we're a blue state, they have cows and we have cows. Now, that rivalry seems to be accelerating, as both states struggle under budget issues and compete to attract businesses which will in turn create jobs.

Texas appears to be winning the inning, with high population growth and an unemployment rate of just 8%, but according to a forecast out Wednesday, the game is likely tied.

The forecast, from UCLA's Anderson School of Business, focuses on the Texas-California rivalry, taking a deep look at the economies of both (the forecast also predicts that California's recovery is going to be slow). UCLA forecast senior economist Jerry Nickelsburg wonders where all the jobs went -- and if they went to Texas.

"Texas, the state with the most rapid population growth over the last decade is held up as the model for job diversion from the Golden State," he writes. Businesses accuse California of having high taxes, stringent environmental regulations and difficult permitting systems, and say that's driving start-ups to Texas.

But Nickelsburg says many of the accusations aren't accurate. As The Times reported last year, California's tax burden isn't actually that high and has been shrinking, and environmental regulation can be a good thing -- after all, even if one business wants to pollute rivers, most other businesses around it benefit from clean water.

As for bureaucracy driving businesses out of the state, Nickelsburg says that it appears that some businesses are more naturally suited to California, and are growing, while others are more naturally suited to Texas. Legislators should focus on making it easier for California-centric businesses to grow in the state.

To explain: Texas has relatively cheap land and lots of open space. California has expensive land and less space. So businesses that are likely to grow in California are those that don't need a lot of land but are what Nickelsburg calls "high value-added, labor-intensive production of goods and services."

There's a long list of sectors in which employment has grown faster in Texas than in California between 2002 and 2010, Nickelsburg says. In terms of manufacturing, Texas outperforms California in automobiles and automotive parts, fabricated metals, furniture, aerospace, machinery, appliances, nonmetallic fabrication, primary metals and wood products. . . .

But California has outperformed Texas in semiconductors, computers and peripherals, communications equipment and miscellaneous durable goods manufacturing such as medical equipment.

For nondurable goods, employment in Texas grew faster in plastics and rubber, food and petroleum, partly because Texas has a lot of oil. California outperformed Texas in printing, beverages and tobacco -- the state has a lot of vineyards.

It doesn't appear that start-ups are going disproportionately to Texas, Nickelsburg says. The states each receive the same portion of venture capital funds as they did before the recession.

So why is Texas' unemployment rate so low when California's is so high? Texas has created jobs in the government, healthcare, mining and logging (mainly petroleum), education, retail and hospitality sectors. Those aren't jobs that are migratory, or that the state "stole" from California. They're just jobs that are able to be created quickly because Texas' business environment doesn't make it difficult to do so.

Nickelsburg's conclusion: California shouldn't worry too much about losing jobs to Texas, but it should worry that companies can't create jobs quickly enough because of regulations. So far, California's technology operations haven't moved away, but the state needs to do more to ensure they can continue to grow, and create enough jobs to make up for the loss of others. He says:

The generation of employment opportunties in sectors where California has a comparative advantage can be enhanced, perhaps dramatically, by a nurturing of California's knowledge communities, the development of an appropriately trained workforce which recognizes California's changed economic opportunities, and a regulatory process reform to permit innovations, designs and concents from those communities to translate into new business.

In other words: Play up California's advantage of innovation and technology, and more jobs can be created.